Buy To Let Mortgage and Renting to a Ltd Company

Hi Jim

This is a good question for our practising mortgage brokers to answer, I am intrigued at what the answer will be.

If in doubt, also ask you solicitor to check the mortgage offer and special conditions and confirm his advice in writing before exchanging contracts on a purchase. That way, the advice will be protected by the solicitors professional indemnity insurance.
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In addition to restrictions on mortgages also check that you can get buildings insurance with this scenario. Some companies also have restrictions on letting to tenants connected with the mortgage holder. If you cannot get insurance then this will invalidate the mortgage conditions.

I've just jumped through the hoops for an unconnected limited company and the insurers (Alan Boswell's NLA block scheme) were initially unreceptive but finally agreed if I limited it to a named director and immediate family (which is what was needed anyway)

Surely, the underwriters' immediate concern is that if you're a controlling director of the tenant company, you're just using this as a cunning wheeze to use BTL affordability criteria rather than conventional owner-occupier mortgage criteria.

Then there is the wider issue of company lets, which I think some lenders are sniffy about. I think their concern is that you might mess up the tenancy paperwork and end up creating a commercial lease which provides much greater security of tenure, so the mortgagee could then struggle to gain vacant possession.

Hi James

A quick round of calls to our lenders has produced mixed results. I asked "If a Limited Company buys a BTL property, can a director of the Company reside in that property as a tenant?", and two of the answers received so far are as follows;

1) "We would not be able to look at this enquiry. The director of the company will be party to the mortgage as he will have to give personal guarantees and therefore the property can only be let to individuals who are not connected to directly or through family members to the limited company. "

...however, also I have another response...

2) "Yes they can, however we must be fully comfortable with everything else on the deal. Also, the rent we use must be either that paid or the market rent, whichever the lower"

The answers above were provided by a mix of traditional and specialist BTL lenders.

In summary, my recommendation is for you to work closely with true whole of market Adviser who is also a Full Member of the NACFB so that ALL lenders can be accessed and comprehensive advice and full service can be offered to you.

Hope this helps.

James (or anyone else who is interested in part of the question),

You should be able to let your property to a limited company as a 'company let', which is acceptable by most lenders. For your own security, depending on how big the limited company is, you may want to take an undertaking from the company's director as well.

With regards to what James is asking - I think HMRC in particular may not be very comfortable with such an incestious relationship.

Hope this helps.

I agree with Mervin on the HMRC issue. You own the property so would be liable for income tax on the rental profits. You charge the limited company (in effect yourself) the rent each month. Which it pays. Which if it is not to be seen as a "benefit in kind" (for which you would be personally taxed) then it charges you as an individual at the rent charged by you, to you.

If you think its confusing now, wait until you try and explain it to HMRC who are always a nice receptive bunch of people who love landlords and want to help them minimise their tax liability......not!

Please seek tax advice on this one before you commit.

Thanks everyone for your responses. I realize some of the implications can be quite difficult to get ones head around.

Just to clarify, I would be buying the property as an individual. The idea was to rent to my (non property related business) as a first tenant, just to ensure that the property is tenanted from day one, then move out once I find a tenant for the property. I am quite flexible with my own living arrangements as I generally rent in central london on short term lets. I am aware of the tax implications to me personal (ie that rent paid by my limited company would be treated as a benefit in kind and hence taxed as income...and I am fine with that.

From what I can see, it seems like anything other than conventional scenarios regaarding mortgages seems to be much more hassle than is worth the effort.

Thanks everyone for your feedback.

I had a similar thought, though not to live in the property myself.

I.e. buy a property in my name, the finance would be in my name personally.

Let the property to a Ltd company (I happen to be a Director and significant shareholder of), then have the Ltd company sublet the property out (by the room, it's a HMO).

The reason for this is that profits can be used to pay myself a salary, alleviating the £25K income issue for future mortgages, and/or retained in the company to be paid out in future years.

Any thoughts on this?

Reply to the comment left by "Colin McNulty" at "26/01/2014 - 06:12":

Hey - nobody did have any thoughts on this back in 2014.

Sounds a good idea to me.